Billionaire tech investor Reid Hoffman said the explosive growth of tech giants like Facebook has led to major problems, but warns that regulation may not be an easy fix

reid hoffmanSteve Jennings/Getty Images

  • Billionaire tech investor and LinkedIn cofounder Reid Hoffman is one of the most influential people in Silicon Valley.
  • He said tech companies have lost the public's trust because they've adapted poorly to rapid growth, and need to stop being naive or stubborn.
  • He does not believe that increased government regulation is a quick fix, because the companies in question grow too quickly.
  • This article is part of Business Insider's ongoing series on Better Capitalism.

Americans are living in a New Gilded Age, where the level of wealth inequality and concentration of power in the elite class is bigger than it's been since the late 19th century. But instead of oil, steel, and railroad tycoons reshaping society, we've got tech giants like Facebook and Google.

Over the past couple years, we've had both democratic socialist Sen. Bernie Sanders and Republican President Donald Trump question the legal legitimacy of trillion-dollar Amazon's size, and both Nobel laureate economist Joseph Stiglitz and 2020 presidential candidate Sen. Elizabeth Warren call for the country to update its antitrust laws.

Also during this time, Facebook has led the pack regarding stories of personal data breaches. The tech giant has faced investigations regarding the way it was used to potentially affect the course of the 2016 US presidential election and bolster the Myanmar government's attacks on the Rohingya Muslim minority.

For millions of Americans, Silicon Valley is no longer the land of startups looking to save the world, but a collection of companies that, even if they still had the best of intentions, are too big to avoid making a mess. LinkedIn cofounder and Greylock Partners investor Reid Hoffman has long been one of the Valley's power brokers, and he hasn't lost faith yet - but he recognizes that big tech players need to reconsider their place in the world and make changes that regain the public's trust. For Hoffman, it's not the size of these companies that is inherently bad, but the fact that these companies are in new territory.

Without naming specific companies, Hoffman and his coauthor Chris Yeh wrote in his 2018 book "Blitzscaling" - titled after the term he coined for the process of rapid, exponential growth through the uncertainty that the Valley is best known for - that "blitzscaling companies grow so quickly that they often become key players in society before they've had time to fully mature." He's hopeful, however, that today's giants can correct for the ensuing mistakes and can then further serve as models for future "blitzscaling" companies, which he predicts will occur across industries well beyond tech.

Determining a massive company's role in society

To start, Hoffman rejected the idea that size (essentially revenue and employees) is either equivalent to a monopoly or is automatically bad. He also said that it is not useful to compare the trusts of the first Gilded Age with today's giants.

Read more: Nobel Prize-winning economist Joseph Stiglitz says the US has a major monopoly problem

"Consumers had no alternatives and were forced to do business with them," he wrote. "In contrast, companies like Apple and Amazon have to win their customers every day, and if they fail to do so, those consumers can simply buy Dell laptops and order books from Barnes & Noble."

There are even benefits to the size of blitzscalers, he wrote, saying that it allows companies like Google to take on "moonshots," expensive and highly ambitious projects, such as the autonomous vehicle experiment-turned-subsidiary Waymo.

That said, Hoffman said that rapidly scaling companies can no longer be naive or obstinate about recognizing the impact they have on the world: "Responsible blitzscaling matters because successful blitzscalers often reach a point where they are more than just a business; they actually affect the fabric of society in which they operate." For example, Facebook has changed the way more than 2 billion people around the world communicate and process information.

Where regulation fits in

As mentioned earlier, there's a renewed interest in antitrust law in the US, which would potentially require tech giants to spin off large subsidiaries, and a general call for regulation. In his book, Hoffman made clear that he does not think having the government enforce more regulations is an easy fix.

Writing about the way Russian hackers used Facebook as part of a plot to sway the American presidential election, Hoffman said, "the default impulse is often to call for the creation of a new regulatory agency, but government regulation alone has proven too slow to keep up with the rapid changes of blitzscaling. At the same time, pure self-regulation hasn't proven sufficient. What's needed is a dynamic public/private partnership where government input meshes with private implementation."

Identifying and fixing problems

A problem a blitzscaler is facing doesn't necessarily have to do with global politics, of course, but could also be something like a lack of diversity among employees that creates blind spots - an actual problem many tech giants that grew rapidly have today.

Startups or firms with aspirations of rapidly becoming a company with thousands of employees and millions of users or customers, Hoffman said, require a bit of fake-it-til-you-make-it imprinted in the company's mission and culture: "You should imagine a future in which the company has succeeded in becoming a global giant, and then evaluate the likely impact of that success on your key stakeholders and on society as a whole." This should be an exercise that grows increasingly less theoretical and more grounded in actual data as the company grows.

Read more: LinkedIn co-founder Reid Hoffman shares his secret for fast growth and getting ahead of the competition

And for both the rising blitzscalers and those that are already giant, special attention must be paid to systemic problems, Hoffman said. There must be a sensitivity to issues that threaten the survival of the company or could one day lead to it. He used the example of how Airbnb responded to an incident in 2011 where a guest trashed and stole from a host's home. The company initially compensated the host and worked with police but saw the backlash to its case-by-case policy. CEO and cofounder Brian Chesky then stepped in to issue a public apology and institute a new $50,000 insurance policy for every host.

A warning from Reid

Hoffman wants tech giants, as well as future blitzscalers, to be open to working with the government and not act on hubris. But he emphatically wants to avoid a new age of sweeping regulations that would impact Silicon Valley. "Slowing things down might make you feel more comfortable, but it comes at the cost of allowing competitors from other areas to gain lasting dominance of the global market," he wrote, referring to companies from nations like China.

The mistakes made by tech companies that went from startups to monoliths faster than any other firms in history have already led to increased scrutiny. Hoffman hopes that scrutiny leads to a changing of norms before government forces them to transform.

Hoffman's theory of blitzscaling has five stages, with the final two stages being City (thousands of employees) and Nation (tens of thousands of employees and beyond).

"Like it or not," he wrote, "when your company is a City or a Nation, you need to start thinking like a mayor or a president and set rules for the good of humanity as a whole rather than just for the good of your profits."

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